CNBC SQUAWK BOX TRANSCRIPT: Thursday, July 07, 2011PAGE 1
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This is a transcript of
Warren Buffett's live interview
with BeckyQuick on CNBC's SquawkBox, Thursday, July 7,2011.
CARL QUINTANILLA:
We want to go live toBecky in Sun Valley,Idaho, who joins us thismorning with a veryspecial guest. Becky,still dark there? Goodmorning to you. —
BECKY QUICK:
Good morning, Carl. Good morning, Joe. It's great to see you guys andwe do have a very special guest who's joining us this morning. Warren Buffett, who's thechairman and CEO of Berkshire Hathaway has climbed up the mountain to join us thismorning and talk a little bit about a lot of the issues that we've been discussing forweeks, if not months at this point. In fact, we were just listening in to what some of whatEric Cantor had to say.And Warren, probably the best place to start this conversation is what's happening inWashington right now. These discussions over the debt ceiling seem to be front andcenter, not only for Washington, but for Wall Street as well. How big of an issue is thisand how dangerous is it— how dangerous is it really if they don't raise the debt ceiling?
WARREN BUFFETT (Berkshire Hathaway Chairman & CEO)
: Well, we don't knowexactly what'll happen. I mean, but if you gave me a six shooter and stuck a gun in— abullet in one chamber and said spin it and five times out of six nothing bad's going tohappen, but we haven't done this before, so we're not sure what's going to happen if thesixth one's pulled. It's just silly to do and we raised the debt ceiling seven times duringthe Bush administration and now in this administration, they're using it as a hostage andyou really don't have any business by playing Russian roulette to get your way in someother matter. We should be more grown up than that.
BECKY:
Although the argument is at this point we're at a very different level. We arefacing some massive deficits. We've taken off on some spending in incredibly highamounts over the last couple of years. And if you can take a phrase from Rahm Emanuel,why put a crisis— why waste a good crisis if you can actually get something done thatcould be, in the longer term, good for the economy?
BUFFETT:
Well, whether it would be good for the economy to have— to have policy...
BECKY:
Or the nation, I should say.
BUFFETT:
...under conditions like this is another question. I mean, when you havesomebody with a gun to your head, you know, do you really come out with the greatest—the most properly reasoned solution to something? And we had— we had— we had debtat 120 percent of GDP, far higher than this after World War II and no one went aroundthreatening we're going to ruin the credit of the United States or something in order toget a better balance of debt to GDP. We just went about our business and people did it ina cooperative way, but they didn't do it by sticking guns at each other's heads.
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BECKY:
What do you think would happen if we get past this August 2nd deadline or adate when the Treasury really has run out of money? What happens?
BUFFETT:
Yeah. And Becky, nobody knows.
BECKY:
Yeah.
BUFFETT:
I mean, the odds are very good that people would assume we get thingsstraightened out within a few days and that nothing dramatic would happen. On the otherhand, you're playing with fire when you don't need to play with fire. And we don't need totell the rest of the world that any time people in Congress start throwing a tantrum thatwe're not going to pay our bills. But we're going to pay our bills in the end. Now you'vegot two ways of paying your bills. You can pay your bills on time and not make a big fussof it, and you'll have the world regard you on way. And you can pay your bills only at thethreat of a gun and the world is going to regard you differently. So it is not— it is not agreat pattern to project to the rest of the world.
BECKY:
Republicans have argued, a great number of them have argued, that even if weget to that point, the Treasury could decide which bills to pay and which not to pay, thatthey could go ahead and pay off those who own Treasuries, pay off the bond holders, andfind cuts in the government to make sure that they're still, technically, not in default. Isthat a proper solution?
BUFFETT:
Well, if they don't get an increase in the authorization, they're going to haveto spend $4 billion a day less than is coming in. Now who makes that decision as to what4 billion doesn't get paid, but I will tell you when you don't spend $4 billion a day thatyou promised to pay, it'll be noticeable. And you'll have— you'll have enormousdisruption. I mean, you can pay the interest on the debt and not pay Social Security. Youcould pay Social Security and not pay the interest on the debt. There's a lot of options,but you are in this country spending about 3.7 trillion a year and you're raising about 2.3trillion a year and there is no magic that keeps a lot of people from looking for checks inthe mail the next day when you've— when you face up to that and can't borrow.
BECKY:
I saw something like three million checks go out every day from the USgovernment.
BUFFETT:
Yeah.
BECKY:
And that even trying to stop the— they'd have to rewrite all the computer codeto try to come up with a way to not send out that much money every day.
BUFFETT:
Yeah. Well, I hope that they decide to cut Social Security, they pay italphabetically.
BECKY:
Well, there are a lot of people who say that's the problem, though. Why is SocialSecurity not means tested? Why is Medicare not means tested? Why aren't we doingsomething to solve some of these long-term problems at this point?
BUFFETT:
And that's a real question and the question is whether you're better off making decisions on those things at the point of a gun or whether there's enoughmaturity in a Congress that they face this, just like they faced 120 percent debt of GDPback after World War II. You know, we've got...
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BECKY:
But these problems— these problems aren't new. These problems aren'tproblems that have built up over decades and there hasn't been a Congress that's beenmature enough or a president that's been mature enough to take this head on.
BUFFETT:
I can— I can— I can end the deficit in five minutes.
BECKY:
How?
BUFFETT:
You just pass a law that says that any time there's a deficit of more than 3percent of GDP, all sitting members of Congress are ineligible for re-election. Yeah. Yeah.Now you've got the incentives in the right place, right? So it's capable of being done. Andthey're trying to use the incentive now we're going to blow your brains out, America, youknow, in terms of your— of your— in terms of your debt worthiness over time, and that'sbeing used as a threat. A more effective threat would be just to say if you guys can't getit done, we'll get some other guys to get it down. And incidentally, we had— we hadSimpson-Bowles, you know, almost eight or 10 months ago.
BECKY:
Right.
BUFFETT:
It's a perfectly rational start and you had 11 out of 18 sign onto it and thenthis Congress that seems so concerned about things now, totally ignored that situation,you know.
BECKY:
All this people will say it was the president's commission and he ignored it, too,and he went with a plan that handed more money to constituencies to make everybodyhappy.
BUFFETT:
Well, there's plenty of blame to go around.
BECKY:
Is there anything that corporate America can do or should be doing to help out?
BUFFETT:
Well, I think that corporate American probably should convey the samemessage I'm conveying, that shame on all of you. I mean, I'm not talking aboutRepublicans or Democrats, that the idea that the credit worthiness of the United States,sure, we'd pay the bills later on and everything. But somebody that's disrupted paymenthas a different payment history than somebody that's always paid on time. And youknow, if you have a habit of paying all your bills late, you know, that will have an effecton how people regard you in the credit market later on. So...
BECKY:
Even if it's not— even if it's not the bond holders who are getting the short endof the stick, even if it's other areas of government, whether it be veterans or SocialSecurity?
BUFFETT:
I think if you have it— if you're the secretary of the Treasury and you have achoice the day after August 2nd of shorting somebody 4 billion each day and one of thechoices is to not send out Social Security checks and the other checks, the other choice isnot to make a big payment to the Federal Reserve, which owns a whole bunch of bonds, Ithink the checks will go to the Social Security people. That's who I would send them to.
BECKY:
Why?
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CNBC Transcript: Warren Buffett at Sun Valley, July 7, 2011
This is a transcript of Warren Buffett's live interview in Sun Valley with Becky Quick on CNBC's Squawk Box, Thursday, July 7, 2011.
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